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Futures near record; Why it's a 'sea change'

On what could well be the worst day of the year—by a fairly wide margin—for stocks, futures activity smashed through to record levels.

Surging volume was pushing the Chicago Mercantile Exchange toward a single-day high, with 30 million contracts traded by 1:30 p.m. EDT. That easily topped the 26.9 million on May 29, 2013, according to a spokesman.

Early in the session, traders flocked to U.S. Treasury note futures, a move that helped push the benchmark government debt issue's yield below 2 percent for the first time since May 2013.

Trading also spiked, however, for eurodollar futures, in moves indicating a sentiment that interest rates are likely heading lower. (Eurodollar is not a trade of the euro versus the dollar, but rather a contract based on the yield of U.S. dollar-denominated deposits held across the world.)

That would mark a "sea change" in market sentiment, according to Andrew Wilkinson, who monitors options moves in his role as chief market analyst at Interactive Brokers.

Treasury bonds traders
Getty Images

That change: Traders pricing in a hike later rather than sooner from the Federal Reserve.

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"Daily volume in each of these contracts is the highest across the entire contract table and by noon in New York, trading in each had attracted in excess of 1-million contracts," Wilkinson said in a midday note. "To put that in context, before today, average 15-day volume was around 490,000 contracts. Futures prices are sharply higher as a result, with money traders perhaps lowering the odds of an imminent Fed tightening."

Market expectations had been that the U.S. central bank likely would take short-term rates off zero by mid-2015. But with all the turmoil, including a drop in the Dow Jones industrial average that exceeded 400 points Wednesday, traders believe the Fed will tread even more cautiously.

"The fact that daily volume is likely to exceed cumulative open interest tells a significant tale. Seasoned traders know that such events are rare and signal either, the end of an old trend or the start of a new one," Wilkinson said. "There is a lot of money flowing into a significant fundamental change in investors' expectations. ... The turnaround in sentiment in the bond market and monetary policy expectations is unprecedented."

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Chatter over the CME action garnered its share of attention on Twitter, particularly from Nanex data platform founder Eric Scott Hunsader: